In 2014, after a challenge from a Tesla shareholder, Clayton Christensen, the Harvard Business School professor best known for his pioneering 1995 theory of disruptive innovation, set out to analyze whether the company was truly disruptive.
In Silicon Valley, among other places, the word “disruption” has become a vaporous cliché, applied liberally to businesses such as Uber, Apple, and yes, Tesla. But Christensen’s theory was quite specific: disruptive innovations involved low-cost products, often first considered inferior to existing competition, that eventually rise in quality – though not price – and capture the market (think Netflix: who would have thought a company where one had to sometimes wait weeks for new-release films, and days for any DVD, would eventually win out?). A “sustaining innovation”, on the other hand, is simply a good product made better (though not necessarily cheaper).
In an article in the Harvard Business Review, Tom Bartman, Christensen’s research associate, measured Tesla against the theory’s criteria: e.g., “Does it disrupt all incumbents, or can an existing player exploit the opportunity?” “Does it create new value networks, including sales channels?” His verdict? Tesla’s cars were a sustaining innovation. It’s more than mere semantics. “If Tesla is following a disruptive innovation strategy, theory predicts that it will continue to see no strong competitive response,” he wrote. As a sustaining innovation, however, once the company begins to move beyond its niche of sports cars for electric-car-minded customers, and into more utilitarian vehicles coveted by traditional car owners, “competition,” wrote Bartman, “will be fierce.”
Those words, written in 2015, are beginning to sound prophetic in markets such as China, the world’s largest electric-vehicle market; in 2016 it overtook the US, and sales doubled the following year. In 2017, it not only had the largest share of electric cars in the world, it made more electric vehicles in 2017 than the rest of the world combined. This includes not just perky little low-range urban runabouts made by big Chinese carmakers like BAIC and SAIC, but flashy tech-laden SUVs from heavily funded startups such as Nio (whose EP9 supercar holds the electric car speed record), Byton (co-founded by a former BWM executive), and SF Motors (whose electric powertrain was devised with input from Martin Eberhard, the first CEO of Tesla).
These latter ventures are directly targeting Tesla, which already faces a tough road in China – thanks in part to import duties and government subsidies, which are ever shifting in the political winds but currently help Nio’s SUV come in at less than the cost of a Model X. In the still evolving electric vehicle market, subsidies play a huge role. There is an almost direct link between the size of government subsidies for electric car purchases and the size of the EV fleet; in Norway, for example, where almost half the purchase price is covered, EVs command a quarter of the light-vehicle market. In China, meanwhile, EVs were just 1.4 per cent in 2016. Tesla, even with its powerful brand aura, is hardly immune from subsidies. In 2017, after Hong Kong put a cap on a tax exemption for EVs, Tesla sales plummeted (leading Elon Musk to personally petition Hong Kong’s Chief Executive to restore the waiver).
Tesla, admirably, still commands some nine per cent of the Chinese EV market, whose importance should not be understated: After the US, it’s Tesla largest source of revenue. The Chinese startups argue that their proximity to, and understanding of, the needs and desires of domestic consumers will give them an edge, just as powerful brands including Amazon, Apple, and Uber have all been displaced by Chinese rivals. And the Chinese EV startups are looking abroad. Last year, SF Motors bought an Indiana factory that once cranked out Hummers, while Nio already has some 500 employees at its research wing in San Jose.
All this brings us back to the question of disruption. That Tesla shareholder’s challenge to Christensen centred around the idea that Tesla was a sort of new-model disruptor – it was creating new markets at the top, that would eventually trickle down to the masses. They may have had a point: who, after all, might have predicted, as we entered the new millennium, that the electric car market in the US would be dominated not by a car that was small, cheap and eco-utilitarian, but a luxury sports car whose cost was on par with top-range German sedans? The Model 3, with its iPhone-like customer queues, has been selling in the US for around $50,000 (£37,000), which hardly makes it a people’s car, but still reflects an expanding customer base.
Perhaps more than anything else, Tesla represents a disruption of the imagination. While there are some undoubtedly impressive technical achievements (a Tesla Model 3 just set the hypermiling record for most miles on a single charge – 606, to be exact) there is arguably little in what Tesla is doing that could not be done by an automaker in Detroit, Stuttgart or Shanghai. Tesla found a market that was not underserved in product terms – you can get from A to B a lot cheaper, and even more reliably, in many other cars – but almost psychically underserved. “A lot of times,” Steve Jobs famously said, “people don’t know what they want until you show it to them.” Musk, with Tesla, turned the electric car from a sort of recycling-bin-on-wheels vessel of virtuousness into a genuine object of desire; not by creating the most sensible vehicle, but by turning everything up to 11, by inviting complexity at every turn (autopilot! alien dreadnoughts!). Musk has, in turn, as biographer Ashlee Vance writes, “inspired Silicon Valley and the world at large to think bigger and dream bigger.”
On paper, there’s much about Tesla that does not make sense. Its stock was, for a time anyway, valued higher than GM or Ford despite having a minute fraction of either company’s sales – and never having posted an annual profit. Bloomberg, after warning Tesla could run out of cash this year, notes “the company burns through more than $7,430 every minute.” Like the world’s most expensive Kickstarter campaign, customers are still waiting, years later, for the cars they signed up as the company struggles through production “hell”. But, as Vance notes, perhaps numbers don’t tell the full story. “Many investors want to judge Tesla as if it’s a normal company run by a normal businessman,” he wrote in Elon Musk. When Morgan Stanley tried, in 2017, to put a market valuation on Space X, its range was $5 billion to $120 billion dollars. Why so large? Because no one knows quite whether Space X will be a steady internet-satellite company, or a pathbreaking Mars exploration firm.
As Musk told Vance, “what matters to me is winning, and not in a small way.” That, says Vance, does not mean “turning Tesla into a steady performer that pleases mutual fund managers,” or Space X, for that matter, into a “utilitarian provider of rides to space for communication satellites.” It’s something far deeper, something “intertwined with his soul and injected into the deepest parts of his mind.”
The concept of the heroic entrepreneur is broadly credited to the Austrian economist Joseph Schumpeter. He saw these agents of “creative destruction”, so vital to capitalism’s reenergising tendencies, as marked by several key motives, all of which are embodied in Musk. There’s “the will to found a private kingdom” – think here of Musk’s idea to use hyperloops or Tesla Semis for deliveries to its gigafactories, or Tesla batteries in our vehicles and our homes. There’s “the joy of creating” – watch the footage of Musk, suddenly nine years old, reacting to the successful landing of his Falcon 9 rocket, and then talking about how a self-sustaining human civilisation on Mars would be “the greatest adventure in human history,” and if you’re not swept up yourself, a pulse check might be advised. And then, echoing Musk himself, Schumpeter identified “the will to conquer… to succeed for the sake, not of the fruits of success, but of success itself.”
Musk is in fact so emblematic of Schumpeter’s hero that, famously, Robert Downey channeled him to play Tony Stark in Iron Man. And Musk certainly seems torn from the pages of a Marvel comic, a teenage boy’s vision of an entrepreneur: strapping one of his cars to the nose of a rocket playing Bowie’s “Space Oddity”; casually tweeting that he had “verbal approval” from the government to build “an underground hyperloop” that would take one from New York to Washington, D.C., in 29 minutes; investing in startups to research implantable computer-brain interfaces one day, prophesising the dangers of AI the next, selling flamethrowers the day after that.
Of course, no entrepreneur, not even Elon Musk, is an island. As Mariana Mazzucato writes in The Entrepreneurial State, Tesla, Solar City and Space X have “benefitted from $4.9 billion in local, state and federal government support, such as grants, tax breaks and investments in factory construction and subsidised loans.” Then there’s the extent to which the state “creates the market” for solar panels and electric cars, through incentives; e.g., the South Australian government’s grants and loans for Musk to create a decentralised, peer-to-peer “virtual power plant” at unprecedented scale (which, crucially, yet may hinge on the tepid response to the plan from the incoming Australian Premier). Or, to take another example, in the third quarter of 2016, Tesla posted a rare and small profit by selling Zero Emission Vehicle credits to other car manufacturers (who were themselves unable, or unwilling, to sell enough electric vehicles to meet state quotas). “But all we hear in the media,” writes Mazzucato, “is the one-sided myth of the lone entrepreneur.”
And yet, state support and incentives are not enough to produce visionary technologies, or things that people actually want. As Indiana University’s Jeffrey McMullen writes, “individuals like Elon Musk… may not act alone, but nonetheless must act if entrepreneurship is to occur.” Some other billionaire or corporation might have ignited the private-sector space market, notes McMullen, “but it seems to have taken Elon Musk’s passion for colonising Mars to spark the courage necessary to attempt rocket building, despite the overwhelming consensus that doing so was an act of hubris and financial suicide.”
Hence the heroic narrative: even as we seek to eliminate uncertainty in our institutions, McMullen notes, on an individual level we still desire it – and so we observe the almost daily travails and triumphs of Musk’s production lines and tweet storms with the intense fascination with which people followed the race to the poles. When the legend becomes fact, as the old John Ford movie had it, people still want the legend. And so the hero myth grows; the man builds rockets, so of course he can get his electric cars out the door on time, and of course he can solve mass transit. Musk’s brother once compared him to a chess grandmaster: “In any particular situation, Elon can see things 12 moves ahead.” But that’s a popular misconception: A grandmaster rarely considers more than a few moves ahead at a time, because unless every subsequent move is “forced,” it becomes increasingly difficult to predict what one’s opponent will do. And there have been plenty of times – e.g, the automation failures at Tesla – where Musk had his eye too firmly fixed on the endgame.
Read more: What's driving Elon Musk?
And there is the danger in heroes beginning to oversubscribe to their own myth. Lately, Musk has been acting in a way that seems almost Trumpian. He lashes out at the news media and financial analysts — while his fans (trade MAGA baseball caps for the “Boring Company” ones) denounce any critics as “short-sellers” or “emotional babies”. In his famously combative recent earnings call, he chided on-point financial questions as “stupid”, pulling a Trumpian move as he largely turned the event over to a YouTube fanboy. He took time on Twitter to call a respected (but, let’s face it, obscure) transit planner (who I happen to know) an “idiot” for daring to raise questions about the hyperloop. He vacillates in describing his plans – the Boring Company tunnel in Los Angeles was meant to alleviate car traffic, but Musk quickly pivoted, and said priority would be given to pedestrians and cyclists – and then smooths over logistical uncertainties with Trumpian platitudes (Here is Musk describing the bricks that would be sold from excavated tunnelling dirt: “They are really great bricks, super strong, incredibly smooth”). Like the President, one senses that dramatic announcements are made to provide cover for problems in other areas. And, as signalled by Musk’s recent Tesla compensation package – which its authors hoped would “incentivise and motivate Elon to lead Tesla over the long-term, particularly in light of his other business interests” there is a perceived question of focus.
To judge Musk as a corporate leader, “on paper” there are plenty of red flags: his executive ranks are rife with turnover; his factories have been plagued by safety and worker morale issues; results are occasionally spectacular but tremendously erratic; and CEOs generally aren’t encouraged to spend time Twitter-trolling. But paper only gets us so far; on paper, few are going to stake their career on high-speed underground transit. The slogan from Paris ’68 – “be realistic, demand the impossible” – could serve as a Musk mantra, and even when we don’t fully believe a Musk enterprise will work, we want to see the boundaries pushed. The question is, does this high-flying Icarus, his shoulders freighted with risk and the hopes of others, ever have to come down to Earth? And, perhaps even more pertinent: Do we want him to?
This article was originally published by WIRED UK
